The following interview was first published on Sustainable Brands:
At the New Metrics of Sustainable Business Conference, Climate Counts is presenting initial findings of the first-ever science-based rating of corporate carbon emissions. The study, conducted by Center for Sustainable Organizations (CSO) Executive Director Mark McElroy and Bill Baue, applies CSO’s Context-Based Carbon Metric, which compares company carbon emissions to science-based targets. The New Metrics panel, led by Climate Counts Executive Director Mike Bellamente, will also include perspectives from two companies on how they achieve sustainable levels of carbon emissions: GE’s Corporate Environmental Programs Manager Gretchen Hancock and Johnson & Johnson’s Global Energy Director Jed Richardson.
To tell the story behind the development, Baue chatted with Bellamente and McElroy in the following dialogue.
Bill Baue: Mike, what drew Climate Counts to a context-based approach to rating the sustainability of companies’ carbon management? What does context add that wasn’t already in the mix of Climate Counts’ ratings methodology?
Mike Bellamente: Honestly, I think assessing sustainability performance without context provides a limited view of reality. It’s as if I were to tell my wife, “Hey, I’ve reduced my cheeseburger intake by 20% from last year” without telling her that my doctor advised me to abstain from cheeseburgers altogether if I’m to avoid having a massive coronary by the time I’m 40. Personally, I’m encouraged by the distance companies have come in such a short period to the extent that they’re benchmarking and setting targets around emissions. But it seems that setting goals that take climate science and atmospheric thresholds into account is the next logical step in the evolution of corporate sustainability. Same with our Climate Counts scoring methodology – it’s time we begin rating companies on whether their carbon output is sustainable, rather than assessing them only on their attempts to measure, reduce and report their emissions.
Mark McElroy: Mike’s assessment of the need to take ecological thresholds explicitly into account when rating or ranking companies on their greenhouse gas emissions is, of course, correct. How else are we supposed to determine whether or not a company’s emissions are consistent with climate change mitigation models, if the thresholds contained in those models are not somehow explicitly applied to organizational emissions? It is not enough to simply set reduction goals in relative or absolute terms, since reductions expressed in those ways are not explicitly tied to ecological limits for what they would have to be in order to be sustainable.
Indeed, one has to wonder why it has taken so long for mainstream sustainability rating and ranking systems to build sustainability thresholds explicitly into their metrics – and kudos to Mike and Climate Counts for being the first to do so! The real reason for the delay, I think, is the extent to which global thresholds need to be allocated to individual emitters (companies), and the reluctance most people feel when asked to make such decisions. Issues of fairness, equity, and morality invariably arise, all of which must be addressed without hesitation. Allocating a fair and proportionate share of the global climate change mitigation burden to an individual company, then, is not for the faint of heart. Still, it can and is being done in ways that have the force of science and reason behind them. The current study at Climate Counts makes that abundantly clear. It is the first study of its kind in the capital markets, where the sustainability performance of publicly traded companies is being rated and ranked relative to contextually relevant ecological thresholds – the world’s first systematic application of context-based sustainability to assessing the non-financial performance of listed companies. Really takes non-financial performance assessment in the capital markets to the next level, in my view.
Bill Baue: Ok, so that establishes the rationale for taking a context-based approach to rating corporate climate impacts. Now, how did Climate Counts go about translating this notion into an implementable methodology?
Mike Bellamente: As a ratings organization that prides ourselves on the consistency of our scoring process, we first needed to publicize our intentions of piloting a Context-Based Metric (CBM) to our stakeholders (see this SB article from last year). Essentially, we see CBMs having a large role to play in telling the story of whether or not we’re any closer to reducing our climate impact as a society. We, therefore, gathered insight from thought leaders around the industry on how we could use this pilot project to inform the future of Climate Counts ratings, while signaling to the market that this is coming.
To get us to the point where we could implement the methodology, we first engaged members of the scientific community, including Cameron Wake, a well-regarded climate scientist at the University of New Hampshire (and board member of Climate Counts) to vet the notion of using carbon models like WRE350 or Tellus Polestar to accurately assess carbon performance at the company level. Once we had consensus on which model best-suited our needs (Tellus), all we needed to do was determine which companies to include in the test pilot. As the universe of companies that have been reporting GHG data since 2005 is relatively small, many of our decisions on this front were made for us. At the end of the day, we think we arrived at a diverse group of companies representing a broad swath of industries.
Mark McElroy: The methodology we used at Climate Counts was actually already in existence beforehand. At the Center for Sustainable Organizations (CSO), we have been working on a context-based carbon metric for several years, starting back in 2006 when the metric was first deployed at Ben & Jerry’s. The method we use starts with the selection of a science-based climate change mitigation model, which essentially describes a normative pattern of global emissions reductions that should be achieved over an extended period of time in order to reverse climate change and restore greenhouse gas concentrations in the atmosphere to safe levels. Most such models, or scenarios, start with a baseline year, and then prescribe a pattern of emissions reductions from that point forward until a desired concentration target has been reached in the atmosphere (e.g., 350 ppm CO2). If a company has been recording its own emissions for all of the same years, a science-based model can simply be overlaid onto its record to see whether its emissions have been consistent with the model’s prescribed reductions or not.
In this case, we looked at two models. The first was the WRE350 scenario, which has as its target stabilized CO2 concentrations in the atmosphere at 350 ppm. The other was a model developed by Tellus Institute in Boston, the same folks who co-founded the Global Reporting Initiative (GRI), and more recently, the Global Initiative for Sustainability Ratings (GISR). The model there is known at PoleStar, and it, too, is aimed at achieving atmospheric concentrations of 350 ppm (CO2). In the end, we chose the PoleStar model because of the way in which it allocates a higher share of the mitigation burden to developed (OECD) countries, and less to developing ones. The WRE350 scenario, by contrast, doesn’t address policy or allocation decisions at all, and is therefore more difficult to work with in cases where such uneven (i.e., justice- or equity-based) allocation policies may be of interest.
We then turned to the task of gathering data for a portfolio of 100 publicly traded companies,including companies Climate Counts had previously examined with its own scorecard in prior years. The goal was to find 100 companies for which emissions data was available from 2005 onwards. To help gather this data, we worked with a company in Zurich called South Pole Carbon, and also CDP (formerly known as Carbon Disclosure Project). Most of the data provided by South Pole Carbon was, in turn, sourced from Bloomberg.
Once we had the data, we were then able to systematically compare each company’s emissions over an eight-year period (2005-2012) with what the PoleStar model says emissions reductions need to be in order to be sustainable (i.e., to be consistent with a mitigation scenario that would help reverse climate change and restore greenhouse gas concentrations to safe levels). In our scoring method, any level of emissions (i.e., in a year) that were less than or equal to the allowable levels specifed by the PoleStar model received a less than or equal to 1.0 score, accordingly. We measured performance in this way annually, but also cumulatively. As of the end of 2012, then, any company with a cumulative score of less than or equal to 1.0 was categorized as sustainable, insofar as its Scopes 1 and 2 CO2e emissions were concerned. We then ranked all 100 companies according to their cumulative emissions scores, and found that 51 out of 100 were sustainable, and 49 were not.
Bill Baue: So, what are the implications of these findings, both in terms of actually tackling climate change, and more broadly, in terms of advancing sustainability ratings?
Mike Bellamente: I think the biggest implication of the study is that we’ve come up with a more accurate way to assess sustainability performance. With regard to carbon: if climate scientists predict that, as a society, we can emit roughly 565 gigatons of CO2 before we tip the 2 degree Celsius scale for runaway climate change, and we’re currently burning fossil fuels at a rate of 31 gigatons/year, it will be 18 years before we arrive at the 565 gigaton mark. Our new context-based rating scale enables us to see which companies are pulling their weight in reversing this course and steering us away from dire climate scenarios.
As for the implications to the sustainability ratings industry as a whole, while I think it’s important to rate companies on things like transparency and governance, at the end of the day our job as raters should be to assess true sustainability performance. I just don’t see how that can be done without rating companies against environmental limits and thresholds. While it may not be an easy task, it shouldn’t preclude us from attempting it.
Mark McElroy: Of course I agree with all that Mike says on the importance of bringing contextually relevant limits and thresholds into the picture when trying to assess and rank the sustainability performance of organizations — can’t be done, meaningfully, in any other way.
I think the study we’ve done has some other important implications, as well, particularly with respect to debunking the conventional wisdom, as it were. For example:
· Even when measured with our comparatively rigorous and unforgiving context-based metric, almost half (49%) of the companies we looked at scored sustainably. This includes lots of companies from heavy industry, such as Siemens, GE, Volkswagen, United Technologies Corporation, Emerson Electric, and many others. Some petroleum companies, too, such as BP and Chevron scored sustainably, contrary to what many might have expected.
· Of even more significance, perhaps, is the clear demonstration in our study that it is, in fact, possible to decouple the growth of a company from its environmental impacts. It is not necessarily the case, that is, that as a company grows, its environmental performance must worsen. Indeed, almost all of the companies that scored sustainably in our analysis grew in business or economic terms in the years we looked at, and yet also managed to comply with science-based targets, if not increasingly so, as time went on.
· Of greater surprise to many, perhaps, is that not only is decoupling possible, but so, too, is it possible for a company’s absolute emissions to actually increase over time, even as its sustainability performance remains positive, if not steadily improving — all while remaining true to a science-based mitigation model that has global emissions in the aggregate coming down, not up.
These and many other surprising insights from our study will be revealed in more detail when the full Climate Counts report is released in December.